by Cory Martin, on January 1, 2024 at 10:04 AM
Investing in new equipment is a big decision, and it's human to push it off until the last minute. However, there's a good reason to purchase your next forklift or floor scrubber in 2024. In fact, it could save you money on your taxes by taking full advantage of a Section 179 depreciation deduction. This special provision allows you to deduct the full cost of equipment purchases from your taxes for new assets purchased in 2024. That's potentially an enormous savings for investing in the material handling equipment you need to keep your business growing. Read on to learn more about Section 179, its deduction options, and how to qualify.
Section 179 Tax Deductions and You
Section 179 is a special tax code provision that relates to deductions on depreciating business assets such as forklifts. Usually, a company's tax return reflects asset depreciation using "straight-line depreciation." This method takes the total cost of the asset divided by the expected life span. The owner can deduct that value each year for the planned lifespan.
However, Section 179 allows businesses to deduct the full cost of new assets on their federal tax return. This special allowance encourages small to medium-sized companies to reinvest in themselves.
How Does a Section 179 Tax Deduction Work?
Under Section 179, companies may deduct the entire cost of qualifying assets on their federal tax return, up to $1,220,000. Purchases exceeding that limit can be deducted up to the limit as well as 60% of the balance beyond the limit. This 60% is referred to as a “bonus deduction.”
The maximum allowable Section 179 deduction decreases once you hit $3,050,000 of total equipment purchased. After this threshold, your maximum deduction decreases for every dollar spent over the limit. For example, if your total equipment purchases in 2024 were $3,060,000, that's $10,000 over the $3,050,000 limit.
Therefore, your maximum Section 179 base deduction would be $1,210,000, and your bonus deduction would be calculated from that new limit. For equipment purchases of $4,050,000 or above, the maximum deduction becomes $0. If you plan on spending less than $4 million in new physical assets this year, Section 179 offers significant advantages.
For Instance…
Here's a hypothetical example to better explain the difference between a straight-line deduction and a Section 179 deduction. Let's say your company buys $1,260,000 of material handling equipment in 2024. You predict that equipment will remain in service for five years. On your taxes, you can use either straight-line depreciation or Section 179.
If you use typical straight-line depreciation, you'll divide that $1,260,000 by five and deduct that amount from your company taxes each year for five years. So, in this example, you'll deduct $252,000 each year starting in 2024 and ending in 2028.
Section 179 Tax Deduction Example
However, if you use Section 179 for the same purchase, your deduction would look like this:
- Total equipment purchase: $1,260,000
- Section 179 base deduction: $1,220,000 (the maximum for 2024)
- Bonus deduction: $24,000 (60% of the purchase price over $1,220,000)
- Total deduction for 2023: $1,244,000
Bear in mind this is a hypothetical example used to illustrate the difference between these two deduction types. You can use an online calculator to estimate your company’s Section 179 tax deduction. Be sure to consult your tax adviser to better understand how Section 179 will affect your organization.
What Qualifies for a Section 179 Tax Deduction?
All physical equipment qualifies for a Section 179 depreciation deduction so long as the expected life of the item is longer than one year. This means all material handling and industrial cleaning equipment purchases meet the basic requirements. The following are just a few examples of what qualifies:
- Aerial equipment
- Forklifts
- Forklift attachments
- Loading dock doors
- Industrial cleaning equipment
- Utility vehicles
- Racking
- Electric forklift charging stations
Pretty much all tangible property, excluding land, qualifies. However, there is one caveat. To qualify, equipment must be in service by 11:59 pm on December 31, 2024. For forklifts and floor scrubbers, the machine must be on-site at your facility and ready to use. They cannot be on order and awaiting delivery. Equipment like loading dock doors or charging stations must be installed and in use. So be sure to plan enough time for delivery and installation if you want to take advantage of this deduction.
You do not, however, have to purchase the equipment outright. Financed or leased equipment can still qualify for a Section 179 deduction even if you're still making payments. This payment flexibility means there's no need to overshoot your budget. You can finance a new forklift this year and pay it off later while still getting your entire Section 179 deduction on your 2024 tax return.
For a Limited Time Only
A Section 179 depreciation deduction can be a significant boon on your taxes. However, it is subject to change. Section 179’s base deduction limit updates each year. Likewise, 2024 is the final year to take advantage of the 60% bonus deduction. Starting in 2025, that deduction will decrease to 40%. So don't miss out on maximizing your deductions by investing in the equipment your company needs to grow. Our team is ready to help you make rapid, informed decisions on what equipment best fits your facility.
Additionally, our flexible payment options include outstanding lease terms. That way, investing in your business also fits your budget. To learn more about investing in new equipment, contact us online or visit your local Mid Columbia Forklift.
Auburn 253-854-5438
Pasco 509-547-7413
Wenatchee 509-663-9009
Yakima 509-457-5137
Further Reading
Forklift Purchasing Options: Buy, Lease, or Rent
Choose the Best Industrial Floor Scrubber for Your Operation
The Complete Guide To Getting and Maintaining a Li-ion Forklift Fleet
